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The EU's NextGenEU borrowing programme could be a bond market "game changer", a senior Slovakian debt agency official tells MNI.
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(Corrects source's title in first paragraph)
Slovakia has already begun pre-financing for next year and will raise the remaining EUR5-6 billion of its 2021 new gross issuance in three autumn bond auctions, possibly targeting maturities between 12 and 30 years, Peter Soltys, head of the debt management department at the country's Debt and Liquidity Management Agency ARDAL, told MNI.
Slovakia has issued EUR4.6 billion of bonds so far this year, out of its expected EUR10-11 billion for all of 2021, Soltys said in an emailed response to questions. Gross issuance should come in below the officially authorised 13.8 billion, which had been increased from the original 10.6 billion due to pandemic measures, he said.
"Despite the officially increased gross needs, ARDAL still expects new gross debt issuances in 2021 only up to EUR10-11bn. The lower need will be supported by extra liquidity inflows to state treasury and a slight reduction in cash buffer compared to 2020," he said.
"The remaining amount of approximately EUR 5-6 billion will be raised in three autumn bond auctions and at least one syndicate transaction (single or dual tranche). Considering our favourable liquidity position we already started pre-financing for the next year."
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For its early autumn auctions, Slovakia has some "natural gaps" in maturities in the 12-30-year range, he said, adding that the final decision on tenor will depend on market conditions.
At the moment it does not seem likely Slovakia will issue foreign currency bonds in 2021, Soltys said.
"Currently we have sufficient cash buffer and we don't see any space for such issuance in 2021. However we are monitoring the situation and we are open for such issuance in general," he said. "Our first choice will probably be to tap the U.S. market as this is our longer-term priority in terms of foreign issuance and our only current USD bond is maturing in 2022."
Slovakia saw demand for its debt pick up in the second quarter, after very low yields slightlyx reduced investor enthusiasm earlier in the year, according to Soltys. Looking ahead, borrowing by the European Union to finance its NextGenerationEU Covid reconstruction plan is set to make a big market impact.
"The main drivers of the debt market in the first half were definitely ECB buying programmes and the new large issuer EU (NGEU), which can be a game changer in the middle term," he said.
It is still unclear when the ECB will begin "tapering" its Pandemic Emergency Purchase Programme.
"We expect the ECB to prolong the PEPP if conditions require it. If conditions are favourable and the recovery is strong then our deficits will improve as well and we should return to some more normal conditions," Soltys said.